Investment Clubs - Part II

Published on:

September 14, 2006

So you've decided that an investment club is a good idea and you want to be a member of one. What should you do next? Well, you can either join an existing one or start one of your own. Most people prefer to set up a new club with friends.

Joining An Existing Club

Some clubs occasionally seek new members to replace those who have moved away or left for other reasons. At moments like these, the club may try and invite new members to join. However, this is an infrequent occurrence. And it can be hard to find the right club that's also looking for a new member.

Members of many of these clubs probably already have some friends they plan to invite. Your best bet might be to ask people you know whether they are in an investment club and whether they need or anticipate needing any new bodies.

You might expect that if a club's account has grown over a decade and its average member's equity is in the thousands of pounds that a new member would be expected to contribute a huge sum of money in order to join. Not true. The accounting systems that most clubs use permit new members to begin contributing merely the standard monthly amount. Longer-term members will each retain bigger pieces of the pie, and everyone's piece is calculated according to how much was contributed when.

Starting an Investment Club

Most of the steps involved in getting an investment club up and running are relatively straightforward.

ProShare Investment Clubs publishes an excellent reference manual that costs around £25-30. It includes everything you need to get started as well as the necessary legal documents and accounting paperwork.

Here's how to get started.

Finding members - Talk to friends to find out who's interested. Ideally you should try to gather people with a variety of interests, experiences, and perspectives to bring to the club. You could ask a few interested friends to invite a few of their own friends.

Decide the size of the club - Aim to form a club with at least 8-10 members but no more than 20. Too few and you may have trouble accumulating funds to invest. Too many and you'll have trouble having quality discussions and finding a place to meet.

Send out initial information - Distribute information about investment clubs to anyone who has expressed interest. Perhaps print out the material you've found here. You want people to learn what investment clubs are all about and think about whether they're really interested.

Organise a preliminary meeting - Gather all interested parties for a preliminary meeting. You need to discuss (a) whether you have enough in common, (b) how you'll be organised and run and (b) whether people are still seriously interested in forming a club.

You'll need to try and agree on the following items:

Think about your aims and approach - Make sure you all have similar or compatible investing goals. If some people want to double their money in two years and then get out, that's not only unrealistic, but also probably at odds with those who want to learn and slowly grow their savings. Differences don't necessarily represent a death knell, but it's good to start out knowing how everyone feels.

Set joining fees and monthly subscriptions - You may also want to give the club a healthy head start and subscribe an initial one-off joining fee. But setting this too high could deter some people. Agree on the amount of the monthly minimum contribution as well. You can always increase the amount at a later date. Many clubs allow members to contribute more than the monthly minimum level if they so desire.

Decide how meetings will work - Agree on a regular meeting time, place, length, and format. Many clubs, over 40% in fact, meet in pubs. Most clubs meet once a month. Most meetings will probably last between one and two hours and setting (and sticking to) an agenda can be a big help.

Name your club - Names that some clubs have used include: The Steady Plodders, The Live and Learn Investors, The SilkSTOCKings Investment Club, Blooming Assets, The Shareettes and so on. One group of women named their club the Stroke of Luck because they all met at a doctor's surgery. Their husbands had had strokes, leaving the women suddenly needing to take control of the family finances.

Make your club legal - Agree on how you'll be organised legally and operationally. The ProShare guide, mentioned above, includes sample legal language for contracts and agreements. This might sound scary, but you should realise that your £20 or £50 initial contributions will be growing into a significant pile of wealth. You'll need to have formal agreements in place to protect yourselves although hopefully that won't be necessary.

Appoint club officers - Most clubs have a chairperson (who sets meetings, presides over them, and plans activities), a treasurer (who deals with the bank accounts, buys and sells shares and keeps records of the club's holdings as well as each member's share) and a secretary (responsible for the minutes of each meeting).

Find a broker - Investors, who make their own decisions, increasingly opt for "execution only" brokers as opposed to the traditional "full-service" brokers who give their clients costly advice.

Teach yourselves - Some clubs have a separate education director, who is responsible for planning (with the input of the group) an educational program, which might include presentations, guest speakers, and assigned reading. Members should be encouraged to ask questions if they don't understand something. Remember that the only stupid question is the one that you don't ask.

Have fun - Don't forget to keep your meetings friendly and co-operative. For many people the social aspect of the club is equally important as the investing and education aspect.